Patent system can stifle software competition

Experts worry that Apple being granted broad patents may give the company control of technologies that, over the past seven years, have been independently developed at dozens of companies and have become central to many devices

By Charles Duhigg and Steve Lohr / NY Times News Service

Wed, Oct 10, 2012 - Page 9

When Apple announced last year that all iPhones would come with a voice-activated assistant named Siri, capable of answering spoken questions, Michael Phillips’ heart sank.

For three decades, Phillips had focused on writing software to allow computers to understand human speech. In 2006, he had co-founded a voice recognition company and eventually executives at Apple, Google and elsewhere proposed partnerships. Phillips’ technology was even integrated into Siri itself before the digital assistant was absorbed into the iPhone.

However, in 2008, Phillips’ company, Vlingo, had been contacted by a much larger voice recognition firm called Nuance.

“I have patents that can prevent you from practicing in this market,” Nuance’s chief executive, Paul Ricci, told Phillips, according to executives involved in that conversation.

Ricci issued an ultimatum: Phillips could sell his firm to Ricci or be sued for patent infringements. When Phillips refused to sell, Ricci’s company filed the first of six lawsuits.

Soon after, Apple and Google stopped returning phone calls. The company behind Siri switched its partnership from Phillips to Ricci’s firm. And the millions of dollars Phillips had set aside for research and development were redirected to lawyers and court fees.

When the first lawsuit went to trial last year, Phillips won. In the companies’ only courtroom faceoff, a jury ruled that Phillips had not infringed on a broad voice recognition patent owned by Ricci’s company.

It was too late. The suit had cost US$3 million and the financial damage was done. In December, Phillips agreed to sell his company to Ricci.

“We were on the brink of changing the world before we got stuck in this legal muck,” Phillips said.

Phillips and Vlingo are among the thousands of executives and companies caught in a software-patent system that federal judges, economists, policymakers and technology executives say is so flawed that it often stymies innovation.

Alongside the impressive technological advances of the last two decades, they argue, a pall has descended: The marketplace for new ideas has been corrupted by software patents used as destructive weapons.

Vlingo was a tiny upstart on this battlefield, but as recent litigation involving Apple and Samsung shows, technology giants have also waged wars among themselves.

In the smartphone industry alone, according to a Stanford University analysis, as much as US$20 billion was spent on patent litigation and patent purchases in the last two years — an amount equal to eight Mars rover missions. Last year, for the first time, spending by Apple and Google on patent lawsuits and unusually big-dollar patent purchases exceeded spending on research and development of new products, according to public filings.

Patents are vitally important to protecting intellectual property. Plenty of creativity occurs within the technology industry and without patents, executives say they could never justify spending fortunes on new products. Academics say that some aspects of the patent system, like protections for pharmaceuticals, often function smoothly.

However, many people argue that the nation’s patent rules, intended for a mechanical world, are inadequate in today’s digital marketplace. Unlike patents for new drug formulas, patents on software often effectively grant ownership of concepts, rather than tangible creations. Today, the patent office routinely approves patents that describe vague algorithms or business methods, like a software system for calculating online prices, without patent examiners’ demanding specifics about how those calculations occur or how the software operates.

As a result, some patents are so broad that they allow patent holders to claim sweeping ownership of seemingly unrelated products built by others. Often, companies are sued for violating patents they never knew existed or never dreamed might apply to their creations, at a cost shouldered by consumers in the form of higher prices and fewer choices.

“There’s a real chaos,” said Richard Posner, a federal appellate judge who has helped shape patent law, in an interview. “The standards for granting patents are too loose.”

Almost every major technology company is involved in ongoing patent battles, but the most significant player is Apple, industry executives say, because of its influence and the size of its claims: In August in California, the company won a US$1 billion patent-infringement judgement against Samsung. Former Apple employees say senior executives made a deliberate decision over the last decade, after Apple was a victim of patent attacks, to use patents as leverage against competitors to the iPhone, the company’s biggest source of profits.

Apple has filed multiple suits against three companies — HTC, Samsung and Motorola Mobility, now part of Google — that today are responsible for more than half of all smartphone sales in the US. If Apple’s claims — which include ownership of minor elements like rounded square icons and of more fundamental smartphone technologies — prevail, it will most likely force competitors to overhaul how they design phones, industry experts say.

HTC, Samsung, Motorola and others have filed numerous suits of their own, also trying to claim ownership of market-changing technologies.

The evolution of Apple into one of the industry’s patent warriors gained momentum, like many things within the company, with a terse order from its chief executive, Steve Jobs.

It was 2006 and Apple was preparing to unveil the first iPhone. Life inside company headquarters, former executives said, had become a frenzy of programming sessions and meetings between engineers and executives. And, increasingly, patent lawyers.

Just months earlier, Apple reluctantly agreed to pay US$100 million to Creative Technology, a Singapore-based company. Five years before, Creative applied for a broad software patent for a “portable music playback device” that bore minor similarities to the iPod, an Apple product that had gone on sale the same year. Once the patent was granted to Creative, it became a license to sue.

Apple settled three months after Creative went to court.

“Creative is very fortunate to have been granted this early patent,” Jobs said in a statement announcing the settlement in 2006.

Privately, Jobs gathered his senior managers. While Apple had long been adept at filing patents, when it came to the new iPhone, “we’re going to patent it all,” he declared, according to a former executive who, like other former employees, requested anonymity because of confidentiality agreements.

“His attitude was that if someone at Apple can dream it up, then we should apply for a patent, because even if we never build it, it’s a defensive tool,” said Nancy Heinen, Apple’s general counsel until 2006.

Soon, Apple’s engineers were asked to participate in monthly “invention disclosure sessions.” One day, a group of software engineers met with three patent lawyers, according to a former Apple patent lawyer who was at the meeting.

The disclosure session had yielded more than a dozen potential patents when an engineer, an Apple veteran, spoke up.

“I would like to decline to participate,” he said, according to the lawyer who was at the meeting.

The engineer explained that he did not believe companies should be allowed to own basic software concepts.

It is a complaint heard throughout the industry. The increasing push to assert ownership of broad technologies has led to a destructive arms race, engineers say. Some point to so-called patent trolls, companies that exist solely to sue over patent violations. Others say big technology companies have also exploited the system’s weaknesses.

“There are hundreds of ways to write the same computer program,” said James Bessen, a legal expert at Harvard.

And so patent applications often try to encompass every potential aspect of a new technology. When such applications are approved, Bessen said, “the borders are fuzzy, so it’s really easy to accuse others of trespassing on your ideas.”

The number of patent applications, computer-related and otherwise, filed each year at the US patent office has increased by more than 50 percent over the past decade, to more than 540,000 last year. Google has received 2,700 patents since 2000, according to the patent analysis firm M-CAM. Microsoft has received 21,000.

In the last decade, the number of patent applications submitted by Apple each year has risen almost tenfold. The company has won ownership of pinching a screen to zoom in, of using magnets to affix a cover to a tablet computer and of the glass staircases in Apple stores. It has received more than 4,100 patents since 2000, according to M-CAM.

The application by Apple that eventually became patent 8,086,604 first crossed desks at the Patent and Trademark Office on a winter day in 2004.

In the next two years, a small cast of officials spent about 23 hours — the time generally allotted for reviewing a new application — examining the three dozen pages before recommending rejection. The application, for a voice-and-text-based search engine, was “an obvious variation” on existing ideas, a patent examiner named Raheem Hoffler wrote. Over the next five years, Apple modified and resubmitted the application eight times — and each time it was rejected by the patent office.

Until last year.

On its 10th attempt, Apple got patent 8,086,604 approved. Today, though the patent was not among those Vlingo and Nuance fought over, it is known as the Siri patent because it is widely viewed as one of the linchpins of Apple’s strategy to protect its smartphone technologies.

In February, the company deployed this new patent in a continuing lawsuit against Samsung that could radically reorder the US$200 billion smartphone business by giving Apple effective ownership of now-commonplace technologies, software experts say.

Patent 8,086,604’s path to approval “shows there’s a lot wrong with the process,” said Arti Rai, an intellectual-property expert at Duke University School of Law who reviewed the patent application for the Times. That patent, like numerous others, is an example of how companies can file an application again and again until they win approval, Rai said.

When Apple submitted the first application for 8,086,604, the iPhone and Siri did not exist. The application was aspirational: It described a theoretical “universal interface” that would allow people to search across various mediums, like the Internet, corporate databases and computer hard drives, without having to use multiple search engines. It outlined how such software might function, but it did not offer specifics about how to build it. It suggested that some people might speak a search phrase rather than use a keyboard.

The ideas contained in the application would blossom at Apple, Google, Microsoft, Nuance, Vlingo and dozens of other companies. All the while, the application traveled quietly through the patent office, where officials rejected it twice in 2007, three times in 2008, once in 2009, twice in 2010 and once last year.

The patent office declined to discuss 8,086,604. Officials pointed out that the agency’s 7,650 examiners received more than half a million applications last year and the numbers have kept climbing.

By all accounts, there have been improvements in the patent office since David Kappos took over as director in 2009. In an interview, Kappos said the lengthy back-and-forth between examiners and Apple was evidence that the system worked.

“It’s called the patent office,” he said, noting that issuing patents is the agency’s job.

In a statement, the agency said it had spent the last three years strengthening policies to improve patent quality. Besides, Kappos said, “we realize that only a handful of these patents will be really important.”

Some experts worry that Apple’s broad patents may give the company control of technologies that, over the last seven years, have been independently developed at dozens of companies and have become central to many devices.

“Apple could get a chokehold on the smartphone industry,” said Tim O’Reilly, a publisher of computer guides and a software patent critic. “A patent is a government-sanctioned monopoly and we should be very cautious about handing those out.”

Others say the system works fine.

“Intellectual property is property, just like a house, and its owners deserve protection,” said Jay Kesan, a law professor at the University of Illinois. “We have rules in place, and they’re getting better.”

“And if someone gets a bad patent, so what?” he said. “You can request a re-examination. You can go to court to invalidate the patent. Even rules that need improvements are better than no rules at all.”